Envoy Medical, Inc. current report, 17 April 2023

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SEC Form 8-K Summary

Registrant: Anzu Special Acquisition Corp I, which proposed combining with Envoy Medical Corporation. Report date: April 17, 2023; filed April 18, 2023. This filing reports transaction agreements rather than periodic operating results.

Business Context and Proposed Transaction

  • Anzu entered into a business combination agreement with Envoy Merger Sub, Inc. and Envoy Medical Corporation.
  • Merger Sub will merge with Envoy, with Envoy surviving as a wholly owned subsidiary of Anzu. Anzu would change its name to Envoy Medical, Inc.
  • Envoy shareholders would receive an aggregate of approximately 15 million shares of Anzu Class A common stock, subject to adjustment under the agreement.
  • Envoy options would be canceled for nominal consideration. Certain Envoy warrants and convertible notes would be exercised or converted before closing.

Capitalization, Financing, and Liquidity-Related Terms

  • The Sponsor agreed to purchase 1,000,000 shares of Series A convertible preferred stock at $10.00 per share, for gross proceeds of $10 million, through a proposed PIPE investment.
  • Envoy may borrow up to $10 million under a convertible bridge note from an Envoy stockholder. The note is expected to be exchanged for Series A preferred stock upon the PIPE closing.
  • The Series A preferred stock would pay a 12% annual cash dividend on its $10.00 original issuance price, rank senior to common stock in dividends and liquidation, and generally be convertible at $11.50 per common share.
  • The post-combination company may mandatorily convert the preferred stock if the common stock closes above $15.00 for 20 trading days within a 30-trading-day period, beginning at least 90 days after closing.
  • Closing requires Anzu to have at least $5,000,001 of net tangible assets after redemptions and the PIPE investment.
  • A forward purchase agreement allows the Seller to purchase up to 4.3 million Anzu Class A shares, subject to reductions and other terms. The transaction includes trust-account prepayment, share consideration equal to 2% of purchased shares, potential warrants, reset-price provisions, and possible additional maturity or penalty consideration.
  • The filing does not provide Envoy revenue, net income, operating cash flow, cash balance, margins, or debt balances.

Material Changes and Agreements

  • The Sponsor agreed to forfeit 10.01 million shares of Anzu Class B common stock, less retained sponsor shares, and all 12.5 million private placement warrants, subject to closing.
  • The Sponsor agreed to vote approximately 70.3% of Anzu’s issued and outstanding common shares in favor of the transaction and related proposals.
  • Envoy executives, directors, and certain 5% shareholders collectively holding approximately 40.1% of Envoy’s fully diluted shares agreed to support the transaction and oppose competing transactions.
  • Existing forward purchase agreements dated December 6, 2021 with certain institutional investors, including Arena Capital Advisors and Fir Tree Partners, were terminated.
  • Registration rights and six-month transfer restrictions were contemplated for specified post-combination shareholders.

Conditions, Outlook, and Risks

  • Closing is subject to shareholder approvals, effectiveness of an S-4 registration statement, antitrust clearance, stock-exchange listing approval, minimum net tangible assets, absence of legal prohibitions or material adverse effects, and other customary conditions.
  • The agreement could be terminated if closing does not occur by September 30, 2023, or by December 31, 2023 if Anzu obtains an extension; it may also be terminated for failed approvals, uncured breaches, failure to deliver required Envoy financial statements by April 30, 2023, excessive appraisal demands, or failure to satisfy the net tangible asset requirement.
  • Key risks include shareholder redemptions, failure to obtain approvals or listing, inability to complete the merger, transaction costs, market volatility, dilution, supply-chain constraints, competition, pricing pressure, intellectual-property risks, and Envoy’s ability to develop products and achieve anticipated growth or profitability.
  • The forward purchase arrangement may increase share-price and dilution risk through reset prices, potential warrants, share consideration, maturity consideration, and other obligations.
  • The filing provides no formal revenue or earnings guidance. Management does not guarantee that the transaction will close or that projected benefits will be realized.

Important Facts to Verify

  1. Review the definitive S-4/proxy statement for Envoy’s historical financial statements, forecasts, capitalization, dilution, and transaction valuation.
  2. Confirm the amount of Anzu shareholder redemptions and whether the minimum $5,000,001 net tangible asset condition is satisfied.
  3. Verify whether the $10 million PIPE and up-to-$10 million bridge financing close and the resulting preferred-stock terms.
  4. Assess the potential dilution and cash obligations from the 12% preferred dividend, conversion features, forward purchase agreement, warrants, and maturity provisions.
  5. Confirm all shareholder, regulatory, antitrust, listing, and appraisal-related approvals and the final outside date.
  6. Read the filed Business Combination Agreement and related exhibits for complete termination rights, adjustments, indemnities, registration rights, and lock-up provisions.